Effects of risk preferences on the value of healthcare interventions

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School of Business | Bachelor's thesis
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Date

2025

Department

Taloustieteen laitos

Major/Subject

Mcode

Degree programme

Bachelor’s programme in Economics

Language

en

Pages

32+9

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Abstract

This bachelor thesis delves into the effects of risk preferences on the value of healthcare interventions. It consists of a literature review comparing the traditional Cost-Effectiveness Analysis (CEA) approach and the more novel approach proposed by Lakdawalla and Phelps (2021), the Generalized Risk-Adjusted Cost-Effectiveness model (GRACE). The two are compared both through a theoretical lens and through a review of empirical estimates. Furthermore, the thesis includes a theoretical case illustration meant to compare the two approaches, through the use of a Markov model coded in R, with the support of the heemod package. In this illustrative case, I consider the disease of multiple sclerosis and its treatments, using Australian data. I compare the cost-effectiveness results under CEA and under GRACE, to highlight that the latter is a more accurate methodology. I then perform a probabilistic sensitivity analysis with a Monte Carlo simulation, meant to be tied together with the insights from the theoretical discussion and those from the literature review. From these insights, I provide implications and suggestions for policy decisions in the field of healthcare, specifically in the assessment of the value of medical interventions. The results of this work suggest that severely ill patients and disabled patients are discriminated against by conventional methods, and that some treatments that could add value to society, specifically to patients, have unwarranted restricted use. Moreover, risk preferences appear to play a key role in influencing the value-assessment of such treatments. Thus, I suggest that GRACE should replace CEA as the new standard, and that more research in this field should be conducted, as I believe it would increase societal welfare.

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Thesis advisor

Murto, Pauli

Keywords

risk preferences, healthcare evaluations, cea, grace, welfare, cost-effectiveness

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https://urn.fi/URN:NBN:fi:aalto-202505254036

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